A Bit Here and There: It All Adds Up!
I first heard of the Money Saving Challenge last winter just as I was rebuilding my budget spreadsheets for the next 10 years to see if I could indeed afford to retire at 60.
It goes like this. On Week 1, you put $1 in the pot. On Week 2, you put in $2, giving you $3 in the pot, and so it goes for 52 weeks, each week putting $1 more than the previous week. At the end of 52 weeks, you’ll have $1,378. When I posted this trick on Facebook at the time, one of my friends said that she used it to save for Christmas gifts, except that she did it in reverse (starting at $52 on Week 1 and putting in $1 less each week).
I hardly ever have any cash on me. I find that when I break a $20 bill, the change I get back isn’t money to me anymore so I just waste the rest away. So, since money has become more of a mathematical abstraction to me, I never needed a trick like this to develop my ability to save. I’m better at going from an abstract model, as complicted as it might be, and enacting it in reality.
But what sparked my interest about this challenge is the number: $1,378. When I started my quest to rebuild my financial health in 2011, I had no idea what I averaged in gas money each year. I mean, it’s such a moving target: in the last decade, I’ve seen regular gas go for as much as $1.49/litre to as little as $0.89/litre, plus some years I travel considerably more or less than others. However, after tracking how much I spent on gas each year from 2013 to 2015, I found that I averaged about $1,500/year, which is damn close to $1,378!
So last December I decided that every late-December when I get my yearly bonus, I would leave $1,500 in my chequing account and earmark it as gas money. Initially I just paid cash as I went (with my debit card) and had a spot in my spreadsheet that showed me the balance in that “virtual account” I called Gas Money. My thought was that I could top it up if I ran out before the following late-December (which I thought unlikely even though I’m driving more these days), and if there was still some money left in it by the following late-December, I would only top it back up to $1,500. I figured I would have to try this for a few years to see if I needed to squirrel away a bit more than $1,500, but the benefit for me is that I wouldn’t be counting that amount as potential savings when I knew that I would in fact be spending it.
Then, last May, Tangerine Bank (where I maintain a savings account) offered me a MasterCard that would pay back 2% on three categories of purchases and 1% on all others, but for the first three months, the cashback on the 2% categories was 4%. You can change your three categories at any time, but knowing I would be going on vacation in those next three months, I chose “Hotels & Accommodations” as one of them, to be changed to “Gas” later, and “Restaurants” and “Groceries” as the other two.
The cashback goes directly into my savings account on the 17th of every month, and by paying absolutely everything I can with that card since the middle of May, I got $135 back as of September 17. It’s not a huge amount, but it’s free money just to use a card! Also, I wouldn’t care if the interest rate on the card were 50% (it’s actually 19.99%) because you pay no interest for the first 21 days and I pay it off at least once a week, often as soon as expenses are posted. I haven’t paid a bank any interest in the last 3 years, except for $35 in 2015 when I borrowed about $31,500 from my line of credit for 10 days in order to meet that year’s RRSP contribution deadline which was a few days before I would be receiving a huge tax refund from the Feds.
Also, twice a year for three months, Tangerine gives a considerably better interest rate on new deposits in their savings account. You have to read the fine print because sometimes the “new savings” are only up to a certain date well within the three-month period, but other times it’s for the whole three months. For July to September of this year, the rate applied for the whole three months and went from its regular paltry 0.8% to 3.25%, so I moved much of what I had in a savings account at my credit union where the rate is 1.7%.
Because Tangerine’s rates aren’t as good as my credit union’s for half the year, I used to drain that account at the end of every offer. However, as the new credit card cashback would go into that account, it dawned on me that I should simply view it as my virtual gas account and earn at least 0.8% rather than ziltch in my chequing account and, on my spreadsheet, I would separate the gas money from the funds I move in and out just to benefit from the semi-annual better-interest-rate offers. And then, in so doing, something else dawned on me.
Now, twice a year (in early-June and early-December), I move whatever interest I’ve earned at the credit union’s saving account into the Tangerine savings account and earmark it for the virtual gas account. Then, whenever I get some interest or cash back from Tangerine, I also earmark those amounts for the virtual gas account.
The point? As of right now, I spent $1,080.17 on gas in 2016. However, my gas fund isn’t down to $419.83 ($1,500 — $1080.17); it’s in fact at $819.50. In other words, with just a bit of planning and a few mouse clicks, I made a few cents shy of $400 and painlessly dumped it into my gas fund. So, come late-December, I might only need to put +/- $1,000 of my yearly bonus into my gas fund instead of the full $1,500. (Update, late-December 2016: I ended up spending $1,298.67 on gas in 2016 — I didn’t have much reason or opportunity to drive in the fall — so with the interest and paybacks earned to the end of December, I only needed $607.69 to top myself back up to $1,500. In other words, it looks like I got banks to pay about half my gas consumption this year!)
A bit here and there: it’s really does add up! I’ll take cash back over air miles anytime because I can really make it work for me. When I told one of my brothers about this little scheme, he just laughed and said, “That is SO something Mom would have done!”
His saying that made me smile. Because he’s right. I hadn’t thought of it that way until he mentioned it, but it really is something she would have thought of as well.
Misleading by Numbers
He didn’t mean it with any ill intent, but I once had a colleague who would sometimes word things in such a way that, while he wasn’t lying, he was answering the question in a way that skewed what was really happening.
Let me try to explain while remaining as unspecific as I can.
My team had a backlog of clients waiting to get an appointment with any one of four or five people. Each of us had a few available timeslots starting three workdays ahead, and then more and more timeslots the further ahead you looked. But each of us is one of two parties, the client being the other. While we might have two timeslots available three days ahead and three timeslots four days ahead, the client might not be available or ready for an appointment for any of those times. Therefore, we have to look for a mutually acceptable time further down the calendar — sometimes many days or even a few weeks ahead.
Concerned that we were having to make our clients wait an unacceptable number of days before getting an appointment with us, our supervisor asked my former colleague at one point, “How far ahead are we booking appointments right now?” In my mind, the answer should have been three days ahead, with the caveat that there aren’t many availabilities. However, my colleague, remembering that one case when he booked an appointment 15 workdays ahead, answered 15 days. While he answered our supervisor’s question literally, he seemed to be implying with his answer that there was no availability before 15 days.
The reason I’m bringing up this anecdote is that I had this nagging thought after posting about my epiphany on how I would be able to afford to retire at 60, or in 9 years. Therein, I asserted that “already I’m living on 70 percent of my income,” but was I really misleading by numbers as my colleague was? Indeed, I realized that when I would add up all the incoming money in one year and substract all the outgoing expenses for the same year, there were a few thousand dollars that I couldn’t trace even if I counted as an “expense” the amount I managed to set aside in the year. The percentage of income spent and the percentage of income saved never added up to 100%, so what was wrong with my logic?
It then occurred to me that I was confusing income with cash flow. For instance, I get a $50/month non-taxable expense reimbursement for my home Internet connection since I work from home, which I just put back into my cash flow. Similarly, the interest I earn in savings accounts, which is taxable, gets circulated into my cash flow as well (specifically to suppplement my gas fund). But I don’t recirculate the interest or dividends I earn in my Tax-Free Savings Account (TFSA) and my retirement fund (RRSP), which are not taxed, and every cent I get back in tax returns goes into my RRSP. While those amounts are incomes, they don’t go into my cash flow.
The minute I added up take-home pay and other revenues that I add to my cash flow (expense reimbursement, interest earned but not tax sheltered, cash payback on all spending done on one of my credit cards), I came to a totally different lower number (CF) from which I substracted all my real expenses (E), which gave me the exact amount I socked away in savings from cash flow (CFS [for cash-flow savings]) as opposed to the total amount saved (S). Then, using that different number as the denominator for percentage of expenses (E / CF) and percentage of savings from cash flow (CFS / CF), I always get 100%. (Well, except for 2015 because I bought my new car cash and used some of my savings, so I adjusted the E / CF formula so that the result cannot be higher than 100% and the formula for CFS so that it cannot be less than $0.)
So what’s my point? I don’t currently live off 70 percent of my income but 75 percent of my incoming cash flow. Or stated differently, I manage to save one quarter of my available cash flow just by planning ahead, paying as I go, and keeping my list of “wants” (versus needs) short so that when I do indulge in wants (which I do!), they’re real treats! What I haven’t wrapped my mind around yet is whether 75 percent versus 70 percent means that I will have to cut back my expenses by 5 percent upon retirement (about $1,500 a year) or if it’ll all work out in the wash. However, I think I’m further ahead in my thinking 9 years before retirement than most people are on the eve of their retirement.
Indeed, Now What Do I Do?
Haven’t we all wondered what exactly a dog expects to do if it should catch the hubcap of a moving car? Of course, the answer is that the dog doesn’t know; it just feels compelled to run after the car.
This notion came to my mind last Thursday morning — October 17th — when I reached my financial milestone of complete debt elimination, except that I’m not totally clueless as to what I’m going to do next, but more about the order of my next milestones. However, without a doubt, reaching this point has been quite a ride.
After giving much thought during my three-week sick leave from work in September 2011 to the notion of when did I last feel content and in control of my life, I got up on Saturday, October 1, 2011, one week after returning to my job, and began working on a spreadsheet. Indeed, it occurred to me during the time I was putting everything about myself into question that one of my many bad decisions in the previous years had been not to pay attention to my finances, for I was very fortunate in that there seemed to always be enough money coming in to cover all the bills and simply glide by. Of course, having the bailiff show up at my door on the morning of my very first appointment with Lucy brought home that I wasn’t really doing such a great job at gliding by.
So, that October morning, I mustered up the courage to look at my accounts online to see how bad things were. I found just over $21K of debt which I immediately consolidated onto my line of credit, and tried to think of all the unusual expenses I would have to cover in the coming months, like weekly appointments with Lucy and the divorce. But then two questions popped into my mind.
- From March 2006 to August 2007, somehow I had managed to clear almost that much debt. Mind you, my monthly expenses are somewhat higher in Montréal than they were in Halifax back then, but not insurmountably higher. Why can’t I do that again? Have I allowed my list of wants to grow into my income?
- Why is it that, when someone is paid every two weeks, there really isn’t two “extra” paycheques per year?
That second question in particular is what brought me to think about cash flow for an entire year rather than month by month and Gail Vaz-Oxlade’s “magic jars” in which she gets people to put cash for a specific purpose (food, transportation, etc.). I combined and adapted those two notions by listing all my recurring expenses like rent, phone, insurance, steady debt repayment and so on, figuring out how much they each cost per year, and dividing each of those figures by 26 — the number of pay periods in one year. This exercise confirmed that I was very lucky to have more than enough money left over for food and vices, and with some trimming back here and there, I could put even more on debt repayment.
So, after resetting the counter at zero and figuring out my expected cash flow for the next two years, I implemented my plan starting with my paycheque of October 6, 2011. My best-case scenario, which included paying for my (failed) therapy to quit smoking and my divorce lawyer, projected total debt elimination by the beginning of 2014. “Best-case scenario” was the operative term; I hadn’t thought through vacation travel and couldn’t anticipate hefty fines, car breakdowns, or the need to buy new tires or dress clothes. However, I also assumed no salary increase, no extra pay for overtime or no better-than-expected year-end bonus, and no elimination or reduction of recurring expenses (e.g., getting rid of my land line in favour of a MagicJack, closing the account I no longer needed at my backup web host, closing dormant resold accounts with my web host that I’d simply left open for no good reason, etc.).
In the end, in precisely 743 days (or 2 years, 1 week and 5 days), I paid off just shy of $28.5K. To achieve this, though, I placed exactly one-third of all income during that time on debt reduction and I don’t recommend that anyone else do the same because, unlike myself, people have a life. I had lived below the poverty line for the 10 years prior to March 2006, which is how I got into debt in the first place, and my best gross income before that was one exceptional year in the early ’90s when I made a hair over $30K. In other words, I’m accustomed to getting only what I need and not what I want — within a few exceptions, of course, owning a car being one of them.
Now that’s not to say that I think I’m more virtuous than everyone else! I just think that most people, when they attain a level of financial security, quite naturally allow themselves to indulge more in what they want. I mean, despite appearances, I feel I’ve done quite a lot of that since 2006, at least by my standards. But just like a diet will fail if you’re depriving yourself to the point of always feeling hungry, an aggressive approach to debt elimination as the one I adopted is doomed if it makes you feel resentful for depriving yourself so much when you know there’s in fact enough income coming in that you shouldn’t be feeling deprived.
At any rate, now that my debt is finally at zero, I still have about two months left for my plan to be finalized, for now I have to refill the virtual “jars” from which I borrowed to get out of debt faster than anticipated. However, by New Year’s Day, I’ll have a few Ks of savings with which I can do whatever I want, which brings me to the dog chasing the hubcap. I know what’s first on my list: buying an extra week’s vacation for 2014, assuming my boss allows me to do so. As for the rest, well …that’s a topic for my next blog entry.
Life on Hold
I have had a series of highly geeky musings in the works for over a month now that I’ve obviously neither completed nor published yet, and I’ve had several other “bloggable” thoughts (or rants) in my mind that, for whatever reason, I never firmed up. I hope to get to those eventually, but for now I offer you this musing for the simple fact that I’ve gone far too long without posting anything at aMMusing.
I don’t like to admit it but I have to: I’ve pressed the Pause button on my life.
That statement sounds depressing, doesn’t it? Yet strangely enough, it isn’t …at least not for me. When I think to how I felt two years ago, I can assert that I’m perfectly fine. Back then, I couldn’t even stand myself; I felt like I wanted to escape by crawling out of my own skin. But three unrelated and quite trivial events that occurred in the last few days have brought the phrase “Life on Hold” to my mind as a “bloggable” topic.
First, I was sitting having a coffee in a park in the Village a few nights ago when this guy, also named Maurice and also born in ’65, sat in front of me to see if I recognized him. I did. We had — or actually, he had — struck up a conversation with me about a month ago. Some things he said back then made me not like him very much, so when that happens, I find it difficult to sustain a conversation with that person afterwards. Clearly having forgotten that he had already posed me the question, he asked me the other day if I was “with someone.” When I repeated my answer that I wasn’t, he asked me for how long I have been by myself. And that’s when it hit me like that proverbial ton of bricks: it will be four years soon! It doesn’t seem that long ago, yet the facts and the calendar can’t lie. At the same time, NowEx does seem like a distant memory but a memory nonetheless: just last night, I had another nightmare in which he featured.
Second, last Thursday evening, I discovered that my bank unceremoniously lowered the rate on its so-called “high-interest” savings account from 1.2% to 1.1%. It’s not a really big deal, except that now I can claim that the bank gives me less than a quarter of what it takes from me in interest on my line of credit. I then figured out that, based on my projections, this tiny 0.1% decrease could represent between 50 to 60 dollars less in incoming interest by the end of 2016 (although I wouldn’t really have the balance being projected since I intend to spend some of it along the way, except it illustrates well the difference ten basis points can make on compound interest). Peanuts, really, but this calculation made me realize the futility of continuing to save as I have — at least for the next few months — while I’m still carrying some debt even if it’s now well below 5K or nearly 85% less than my total reimbursement of so-called consumer debt since Thanksgiving 2011.
Third — and certainly the most trivial — I finally got around to submitting my first reimbursement claim at work for my Internet connection, to which I’m entitled since I work exclusively from home. I’ve said it before: I’m my own worst advocate when it comes to money; I didn’t even submit a claim for my hotel room and train ticket to Toronto in 2009 even though the trip was entirely work-related. So, upon receiving my first reimbursement on the same day I got confirmation that I’m receiving less interest on my savings account, I fired up my uber-complicated but highly effective budgeting spreadsheet and spent hours rejigging it because 50 bucks a month represents more than two years’ worth of power bills …or a very decent dinner out, or a few bottles of non-plonk wine, or a tank of gas, or …well, you get the picture.
As I was doing that — slowly, methodically, yet realizing no sane person would spend as many hours as I have on this thing — I kept hearing one thought in my mind: “Life on hold, life on hold…” Ever since I reconstructed my spreadsheet in late-October and especially after my net debt finally fell to a mere four-digit figure in mid-December, I seem to have declared 2013 as my “last year of sacrifices.” A few months ago I complained that I might be pushing myself too hard on that front, but it seems that I just can’t stop myself. I don’t remember a moment in my adult life when I had no debt AND a realistic hope of staying bad-debt-free, so with that target only four-and-a-half or five months away, I’ve chosen to cut out anything that is absolutely not necessary so that, for the first time in seven years, every cent of my year-end bonus will be all mine and not going right back to the bank.
I’ve developed the discipline of putting aside at least one out of every four dollars I take home without even breaking a sweat! When I first started cleaning up my act nearly two years ago, I knew that my whole budget was a best-case scenario but I told myself that any unlucky break would merely push the target a little bit further. But the bad strokes of luck that did fall onto my path were met with some lucky strikes of almost equal magnitude, so, in my mind, with the target so close, what’s a few more months of austerity if I can gently coast to it? The fact the target is a full four to five months SOONER that my best-case scenario of October 2011 is only egging me on.
Therefore, air-conditioning for the apartment this summer? Forget it; I’ll suffer a bit for one last summer. A nice trip overseas or even to the bloody USA? No, not yet. Finally getting decent furniture? Next year, and that’ll be cash, thank you very much. If I can’t pay for it right then and there or within four to six weeks, it ain’t happening. But, starting in July, I will be using a budget line I haven’t used yet, namely having someone come in to clean my dump once every two weeks. And because I find having only three weeks’ vacation per year isn’t enough, I’ll start buying myself an extra week’s vacation starting in 2014 because I believe my sanity depends on it.
So truth be told, I met the line “life on hold” with a kind of ambivalence when it kept echoing in my mind this weekend. On the one hand, it’s rather pathetic that I should be doing so little these days and I wonder if it’s a mistake to defer living as I am right now. But, on the other hand, the prospect of living well and travelling as so many of my friends and family are able to do, all within my means, is just too damn enticing.
Really, I’m Not! Or Am I?
I’ve been feeling too lazy in the last few days to bother going out much even though I’m on vacation over the Holidays. Granted, the record-breaking 46-centimetres (18-inches) snowfall in only 15 hours over Montréal on the 27th has made going out unappealing, especially since the City expects it will take more than a week to clear up the mess, which means driving and parking around town is a total nightmare.
Still, I’m a bit at a loss to explain why I’ve been putting off going to the Musée des Beaux-Arts de Montréal to see an exhibition I really want to see: Il était une fois l’Impressionnisme. After all, this city does have a completely underground subway and I live only two blocks from a station! But the mere thought of having to bundle up to brace the cold and putting on my heavy and uncomfortable winter boots is enough to make me say to myself, “Nawh…”
So what I have been doing instead?
Well, aside from going to my sister’s for two days over Christmas, I’ve done some reading online. I’ve done a few minor but helpful updates on the web application we use at work. (I consider that stuff more of a hobby than actual work.) I’ve watched some TV. I’ve called a few out-of-town friends. But mostly, I’ve rejigged yet again my budget spreadsheet, which is leading me to seriously question my sanity …in the sense of saying to myself, “Maurice, you’re obsessing over this thing!”
But I think my reasons for coming back to it stems from the fascination I hold as I assess what I’ve accomplished thus far.
- The October 2011 version of my budget was so opaque in comparison to my November 2012 version that it felt like a runaway train. It seemed to work although I didn’t understand how or why, but then I had to make several corrections when it derailed a little bit. In my newest version, however, the Summary tab matches up to the penny at all times with my actual bank balances, which eliminates all confusion and ambiguities.
- According to this August 2012 Globe & Mail article, “the average Canadian’s non-mortgage debt reached $26,221 in the second quarter of 2012, up $192 from the previous quarter,” a level the article calls “a new record high.” I seem to recalll that, when I did my first serious budget in a decade shortly after I started my job in March 2006, my debt was about 125% that figure stated for 2012. Being used to living on very little and not knowing if the job would become permanent, I achieved the remarkable: I brought it down to just 38% by January 1, 2008. Then, however, I did that crazy thing of getting married, so when I picked up the pieces (and myself) and restarted budgeting in October 2011, I was back up — far less deeply than in March 2006, at about 81%. Yet in only 15 months (i.e., in about one week), despite expensive curve balls, failures, and lawyer’s fees for the divorce, I’ll be at 33% and totally in the clear by the end of 2013 (probably much sooner given an important variable I haven’t factored into my calculations and should kick in by early spring).
- I keep coming up with creative and flexible ideas not only to accelerate this debt-elimination plan but also to actually build some savings and to find ways of eventually contributing more towards retirement. Basing myself on the principle of “pay yourself first,” I allow myself a lot of wriggle room on every paycheque — so much so, in fact, that during cold winter months when go out even less, I end up not spending all my “allowance.” So, instead of spending it during the next period, I throw whatever excess — even if it’s only 10 bucks — into debt servicing or savings. It’s amazing how quickly a few dollars here and there add up quickly!
I’ve said it before, but this budgeting thing is not a chore but an ultimate act of optimism for me by virtue of looking years into the future. I’m fortunate in that there’s enough coming in, but the discipline budgeting imposes is allowing me to see some fabulous options in front of me.
- I should be able to pay for my next car in a few years out-of-pocket, which would also be less expensive since many car dealers give a considerable discount on a cash purchase.
- Since I only get three weeks of vacation time (which is not enough) until I reach 10 years of seniority at work but my employer allows me to buy up to five days of vacation time per year, I will soon be able to effortlessly afford such a purchase.
- Going forward, I will always have savings to cover vacation expenses “as I go” rather than putting them on credit and worry about paying later, which is what got me into debt in the first place (aside from the fact I had no choice but to live on credit prior to March 2006).
- I can also think about making big purchases like air-conditioning and furniture without getting back into debt, or at least not on a long-term basis. That’s how I managed to buy winter tires and a new suit in mid-November and had them paid off by Christmas.
- And best of all, I project that in only three years, if nothing goes extraordinarily wrong, I could have from six to nine months of clear salary sitting around, building a bit of interest but being readily available should some personal disaster occur.
The only grey cloud in this sky filled with silver linings is that purchasing a condo in Montréal remains out of my reach. I’d need to make $15K more a year to even scratch the entry level and I sure as hell ain’t going to get myself a(nother) husband just to make a condo happen, so after the extensive number-recrunching I’ve done, I’ve not only stopped even entertaining the thought but also stopped feeling any regret about not being able to achieve that one goal, for really, in all other respects, I’m feeling incredibly empowered and optimistic financially for the second time in my life.